The stock market’s monthslong drop picked up steam in the past week. More declines are likely in the cards.
The
S&P 500 index,
already down for the week, dove Wednesday, dropping almost 1%. It’s seeing further declines early Thursday. The latest downside move comes as the Federal Reserve left interest rates unchanged this week, but signaled that it will keep rates higher and longer than Wall Street had expected to fight inflation.
The result is that the S&P 500 is now about 5% down from its 2023 high of 4,607.07, set in late July. The overarching issues, related to Wednesday’s Fed announcement on rates, is that the delayed impact of higher rates will continue to weigh on the economy, and that there won’t necessarily be much relief as the Fed will be slow to cut rates, and won’t cut by much.
With the S&P 500 now at just below 4400, more declines seem to be in the cards. The last five trading days look like a nosedive, so it’s reasonable to assume the index has a good shot of dipping to 4300. That’s a key support level, where buyers have come in several times earlier this year to send the index higher. If those buyers don’t show up at 4300—if their confidence in the economic picture doesn’t improve—the next key support to level to watch is 4200.
Depending on how quickly the index is falling, it might stabilize for a few days at 4200. If it can’t hold there, don’t be surprised to see the index drop to near 4000, another key support level.
“Ideally, we don’t want to see 4300 break because it will open the market up to additional downside paths, not only toward the 200-day moving average [roughly 4200] but to 4075,” wrote John Kolovos, chief technical strategist at Macro Risk Advisors.
Hitting 4075 represents about 7% downside from the index’s current level.
That’s enough of a potential drop to stay away from stocks for the near term.
Write to Jacob Sonenshine at [email protected]
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